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Is Debt Management and Credit Counseling An Effective Way Out Of Debt?

So many, too many reporters and writers recommend debt management programs and nonprofit credit counseling as a way to get out of debt, but why?

I’m afraid the answer is that they always have and suggesting a nonprofit credit counseling solution seems harmless and better than offering the alternative, no real solutions.

The credit counseling industry, it is an industry designed to make money by collecting money from you and returning it to the creditors, is basically flawed.

While other industries are striving more for openness and transparency, that is exactly what the nonprofit credit counseling industry does not want. The more secret the better.

The critical information that is never given to consumers is that which could be used to judge the effectiveness of individual credit counseling programs in aiding people in debt.

Granted, on one hand, success in credit counseling can be a bit difficult. For example, if it is better for you to go bankrupt and you are instead talked into a debt management program, is that a success or failure?

Credit counseling programs are generally measured by creditors on their effectiveness to collect money from consumers and to keep you paying as long as possible. Non-profit credit counselors can be financially punished if their collection quotas or performance drops below a certain point. The reality is that while the credit counseling groups wear a not-for-profit costume they are controlled by their funding source, the creditors, and essentially fee for service debt collectors.

It is a sick and incestuous relationship that screams to be changed. It seems ridiculous that reporters and journalists continue to praise credit counseling groups and sending people to nonprofit credit counseling groups and yet little to no print has ever been spent on the effectiveness of a credit counseling debt management program.

As a holding tank while you are deciding what to do or putting together a more permanent solution, credit counseling can be an effective temporary tool. But the secret that non-profit groups don’t want to openly share is that 75% or more of people that enroll in a debt management program never successfully complete repaying their debt in the program.

Sure, there are some success stories, but the majority of people will stop paying, drop out, or go bankrupt before ever repaying their debt in a nonprofit credit counseling program.

If you don’t believe what I’m telling you then I challenge you to ask your credit counselor for a report about their success rates and you’ll see just how open and transparent they really aren’t.

Is Debt Management and Credit Counseling An Effective Way Out Of Debt? by

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Steve Rhode

    Gerri,

    I’m in the process of writing letters to members of Congress, urging that consumers are given access to a solution that allows consumers to enter into a reasonable and sustainable repayment plan over a fixed period of time and the rest of the debt is discharged without the need for bankruptcy. It is an approach that has worked well in the UK.

    Chances are better of something like that actually seeing the light of debt if we have an Obama administration in place.

    Steve

  • http://www.ultimatecredit.com Gerri Detweiler

    You’ve hit on an important point here Steve. Credit counseling is painted as good while the other options (debt settlement or bankruptcy) are always painted as bad. Unfortunately, most people seeking help from credit counseling today can’t pay back 100% of their debt plus interest. It’s simply impossible. So then they feel they are a failure when they have to choose one of the “bad” options.

    There was mention made in the FTC hearing on Debt Settlement recently that counseling agencies may in the future offer a repayment option that doesn’t require paying back 100% of the debt…Do you think there’s hope for it?

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